Hitachi to buy digital product developer GlobalLogic for $9.6 billion

Now one of the oldest of old-school Japanese industrial heavyweights is spending $9.6 billion to help remake itself as a company that emphasizes software and services. Hitachi said Wednesday it would buy a U.S. company, GlobalLogic Inc., that handles clients’ digital projects with an army of thousands of developers in places like India and Eastern Europe.

“This is going to be a kind of reform for the entire company," said Hitachi’s chief executive, Toshiaki Higashihara.

Hitachi paid a rich price—more than four times the value assigned to GlobalLogic just three years ago. GlobalLogic had estimated revenue of $921 million in the year ending Wednesday, Hitachi said.

The U.S. company will join Hitachi’s existing software and services business, called Lumada. About 70% of Lumada’s business currently comes from Japan.

“We’ve had achievements to date domestically in mission-critical areas, but we fell short in terms of our ability to spread our wings globally," said Toshiaki Tokunaga, Hitachi’s head of services and platforms. He said Wednesday’s deal could eventually lead to the Lumada business getting more than half its revenue outside Japan.

The deal gives GlobalLogic’s shares a value of $8.5 billion. Hitachi said its total cost would be $9.6 billion after including GlobalLogic debt it is paying off.

The winners in the deal include the Canada Pension Plan Investment Board and investment firm Partners Group. Each owns nearly half of GlobalLogic, and each expects to net $3.8 billion in the sale.

Hitachi, founded in 1910, has developed a reputation as one of the most aggressive deal makers among Japan’s conglomerates. It long ago got out of most consumer electronics, although home appliances are still a small part of its business.

More recently, it has unloaded other hardware and industrial businesses seen as slow-growth, such as its power-tool and chemical businesses. It still makes heavy equipment such as trains and auto parts, but has invested more in services to help other industrial businesses digitalize.

Investors have cheered, bringing Hitachi’s share price near a 20-year high this year, although the shares fell 7.3% in Tokyo on Wednesday’s news.

In a recent column, University of California, San Diego, business professor Ulrike Schaede said the rush of deal making represented a “Hitachi shock" for other slow-to-change Japanese corporate groups.

“Hitachi is a good example of a company transformation that includes an identity shift from an electric machinery maker to an infrastructure data solution company," she said.

This story has been published from a wire agency feed without modifications to the text.